When will Supreme Court rule on pension cuts?

The state Supreme Court agreed last December to hear an appellate court decision in a Marin County case allowing major cuts in public pensions — but not until the appeals court rules on a slow-moving consolidation of three similar county suits.

Now a pension reform group is watching a second appellate court decision that, citing the Marin ruling, allows pension cuts. The Supreme Court has asked parties in the state firefighters union suit against CalPERS to submit briefs by June 30.

An early Supreme Court decision upholding the appellate rulings might allow time for reformers to consider putting an initative on the state ballot next year. A favorable ruling also might prompt local action or labor bargaining to curb budget-squeezing pension costs.

The four county suits and the state firefighters suit all challenge minor parts of Gov. Brown’s pension reform that apply to employees hired before the reform took effect on Jan. 1, 2013.

A unanimous Marin County ruling last August began with a look at the “emergence of the unfunded pension liability crisis” after pension investment funds, expected to pay nearly two-thirds of future pensions, had huge losses during a stock market crash a decade ago.

The California Public Employees Retirement System, recently only 65 percent funded, has raised employer rates to an all-time high. Rate increases are expected to continue until 2024, further shrinking public services amid fear some cities may be pushed into bankruptcy.

Attempts to curb pension costs mainly have been limited to new hires, taking decades to yield significant savings. That’s because of a series of court decisions, a key one in 1955, known as the “California rule”:

The pension offered on the date of hire becomes a “vested right,” protected by contract law, that cannot be cut unless offset by a comparable new benefit, which erases any savings for employers.

Citing a different series of court decisions, and arguing that the 1955 decision says “should” have a comparable new benefit not “must,” the Marin County ruling weakens or even overturns the California rule.

“While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension,” Justice James Richman wrote in the Marin County ruling.

“And the Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature’s modifications do not deprive the employee of a ‘reasonable’ pension, there is no constitutional violation.”

The ruling took a long look at a Little Hoover Commission report in 2011 that warned pension costs will cut services and force layoffs. The report recommended allowing cuts in pensions current workers earn in the future, which could quickly yield significant savings.

The Marin County case is a union challenge to “anti-spiking” provisions in Brown’s reform that prevent the pensions of workers hired before the reform from being boosted by stand-by duty, in-kind health care and other things.

A consolidated case for similar suits in Alameda, Contra Costa, and Merced counties has been briefed. But oral arguments have not been set by the appeals court, reportedly due to scheduling conflicts among the attorneys for unions and retirement systems in each county.

The state firefighters union, Cal Fire Local 2881, sued CalPERS to lift the Brown reform ban on boosting pensions by purchasing up to five years of additional service credit, called “airtime” because work is not performed to earn the credit.

A second three-justice appeals court panel upheld the airtime ban in December, making several references to the groundbreaking ruling in the Marin County case.

“The law is quite clear that they are entitled only to a ‘reasonable’ pension, not one providing fixed or definite benefits immune from modification or elimination by the governing body,” Justice Martin Jenkins wrote in the unanimous firefighters decision

CalPERS had not filed a brief in the Cal Fire case as of late last week. Chuck Reed, a former San Jose mayor now with the Retirement Security Initiative, thinks CalPERS or the state may ask for an extension of the June 30 deadline for filing briefs.

“I’m cautiously optimistic that the court will have an oral argument by the end of the year,” Reed said.

If the appellate court ruling is upheld by early next year, there would be little time to place a pension reform initiative on the ballot next November. An initiative would have to be prepared to reflect the initiative, funds raised and voter signatures gathered.

Another hurdle could be a legal battle with the state attorney general over the ballot title and summary of the initiative. Pension reformers dropped initiatives aimed at the 2012 and 2014 ballots, saying the ballot labels would repel voters.

A bipartisan group led by Reed and former San Diego Councilman Carl DeMaio filed two initiatives in 2015. One would cap spending on retirement benefits. The other would likely give new hires a 401(k)-style plan, unless voters approved a pension.

This time, the reform group did not complain about the titles and summaries issued by former Attorney General Kamala Harris. But time and money were short, and there was no attempt to put either proposal on the 2016 ballot.

Assemblyman Bill Brough, R-Dana Point, introduced a constitutional amendment (ACA 15) in May similar to the Reed-DeMaio measure requiring voter approval of new-hire pensions. The proposal faces stiff opposition from the Democratic majority and may not get a hearing.

Some local action might be possible if the Supreme Court weakens or overturns the California rule. Reed and DeMaio led drives in 2012 for pension reform measures that received strong voter approval.

Measure B in San Jose, placed on the ballot by the city council, received 69 percent of the vote. Proposition B in San Diego, an initiative placed on the ballot by voter signatures, received 66 percent of the vote.

A statewide Public Policy Institute of California poll issued in January 2014 found that 85 percent of likely voters think the amount of money spent on public pensions is somewhat of a problem and 73 percent support switching new hires to a 401(k) plan.

Only a half dozen of the largest cities, like San Jose and San Diego, have their own pension systems. The 20 county retirement systems operating under a 1937 act apparently are tightly controlled by legislation.

A local initiative switching new Ventura County employees to a 401(k)-style plan was removed from the 2014 November ballot. A court ruled that legislation or a statewide ballot measure is needed to make the switch for 1937 act county systems.

Cities and other local governments in CalPERS would face a large termination fee if they switch new hires to 401(k)-style plans or another retirement system. The judge in the Stockton bankruptcy called the fee a “poison pill” for attempts to leave CalPERS.

Reed mentioned the possibility of switching current workers to the lowest pension formula available, perhaps avoiding a termination fee and the need for legislation.

An attorney who has been following the appeals court cases, James Touchstone of Jones & Mayer, said even if the Supreme Court opens the door and there is the political will to make pension changes, additional litigation seems likely.

“Nothing is going to happen quickly on any of this,” he said.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 26 Jun 17

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If the key “vesting” is the pension offered on hire, then the late-90s increase might be vulnerable for people hired before that. Do I understand the court cases to say that pension increases (like the late-90s one) that are granted later in one’s career can be cut back again at some point (to not worse than the original terms) for future accrual (probably subject to some kind of collective bargaining)? If so, it could produce a wide variety of pensions, with people hired while the higher one is in place being vested in that, while people hired before get a temporary bump but then are cut back again, and people hired after “reform” could have substantially lower pensions than either of those groups. Not good for employee relations, but I could see that such a setup would be attractive in a financial pinch.

“The Marin County case is a union challenge to “anti-spiking” provisions in Brown’s reform that prevent the pensions of workers hired before the reform from being boosted by stand-by duty, in-kind health care and other things.”

The Case brought by the Firefighters is soooooooo beyond pale in showing the insatiable GREED of these Public Sector workers.

Unless “reasonable” is to be detached from taxpayer/employer costs and government employee benefit levels as normed against those of the private sector citizens who have to pay for government pensions, Allen v. City of Long Beach’s logic of this:

“An employee’s vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system. Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change. To be sustained as reasonable, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation…”

is completely undone by this non sequitur:

“…and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages”

That’s like saying you can reduce the dollar amount by x to achieve reasonableness as long as you give x dollars worth of something else, which effectively reverses the action that was taken achieve reasonableness. Pension cost -x$ +x$ = pension cost.

It seems like some courts are getting this. We can only hope that California’s Supreme Court, government pensioners themselves, gets it too.

Ed, color me shocked that after writing this “Measure B in San Jose, placed on the ballot by the city council, received 69 percent of the vote” you failed to note that measure was overturned several years later by the San Jose City Council, which repeal was affirmed by voters. Or that San Jose had to increase salaries and benefits to attract police officers after they had left in droves because of Measure B.

After the Measure B fiasco, it boggles the mind to see Chuck Reed–the godfather of Measure B–quoted anywhere as a credible source on pension changes.

Peter, The difficulties in San Jose don’t even REMOTELY justify the LUDICROUSLY generous pensions & benefits.

All it showed is that real reform (meaning 50+% reductions in these pensions) will need to be Statewide so that withing a few years there will be no OTHER place to go to still get these ludicrously excessive compensation packages.

So after we throw the sanctity of contracts under the bus, we are left with a “reasonable pension.” Define “reasonable.” Poverty line? Median income in the county in which you live? No more than the $118k per year PEPRA cap?

How deep can the Legislature cut pensions and still be “reasonable?” What a can of worms.

(1) Contracts between Public Sector Unions and Elected Officials (or their reps) BOUGHT with Public Sector Union BRIBES disguised as campaign contribution, and with NOBODY truly representing the Taxpayers best interests, deserve NO sanctity.

(2) Public Sector pensions ROUTINELY have a “value upon retirement” (encompassing BOTH their “formulas” and “provisions” such as VERY young full retirement ages and COLA increases, unheard-of in Private Sector Plans) 2 to 4 times (4 to 6 times for Safety workers) greater than the pensions/retirement-security typically granted Private Sector workers who retire at the SAME age, with the SAME wages, and the SAME years of service.

A “reasonable” Public Sector pensions is one EQUAL TO (but no greater) than those typically granted Private Sector workers.
*************************************

The decades-long financial rape of Private Sector Taxpayers by the insatiably greed Public Sector Union//workers, and enabled by our self-serving, vote-selling, contribution-soliciting Elected Officials must END !

It’s unfortunate that future generations, unable to vote today, will bear the costs of many enacted pension programs, entitlements and boondoggle projects, requiring them to pay higher taxes and work later into their lives to pay for these promises. It’s the inmates running the pension Asylum that are loading up system with lucrative packages for themselves, to be paid for by taxpayers.

The international business world is intelligent enough to know that DEFINED BENEFITS, neither capped nor precisely quantifiable in advance, financial disasters to any business, thus all businesses focus on the known, i.e., defined CONTRIBUTIONS alone.

Stealing from the young who have no votes, but silently shoulder the costs and bear the burden of unfunded promises of these programs to enrich the old seems to describe the Governments expansion of entitlement benefits and other government services, along with the taxes young people will have to pay to support them, mostly to subsidize older Americans.

The inmates know that debt for our future generations buys votes. Over the decades, the proven “concept’ practiced by voters is to defer as much financial responsibilities as possible from our current financial responsibilities to future generations, that have no votes on the subject. Simply stated, if we cannot afford it today, pass it off to the future generations to minimize any impact on our current lifestyles.

Another insult to the taxpayers and future generations paying their pensions is that many of those early retirements collect their guaranteed pensions, and then take a second job.

Virtually all elected officials are heavily financed by unions which are focused on entitlements for their current members. The unions, government, and other bureaucrats have been very successful in manipulating the system to enrich themselves. Thus, no changes can be expected in the foreseeable future for elected officials to ever abandon their source of votes.

Even before those young folks can vote our Golden State schools are on track to force substantial budgetary cutbacks on core education spending, as public schools around California are bracing for a crisis driven by skyrocketing worker pension costs that are expected to force districts to divert billions of dollars.

1) a state or municipality that doesn’t honor its promises to those who keep it safe and running, is a state or municipality embracing corruption and the 3rd world.

2) pension obligations are a challenge, but that is why administrators across California make such high salaries? Instead, it feels like they want to find absolutely any way to escape their obligations. These are not turning out to be either honorable or forward thinkers.

3) late 90’s – 2000’s pension spiking (along with numerous pension holidays taken across the state by many municipalities) have been a giant reason for this problem. If spikes from those years were removed, it would seem only fair. Having retired just prior to the spiking, I cannot believe the amount people are making for the same job, same years on just retiring 2 years later.

4) as stated above, in the 90’s pension spiking became norm and many municipalities took many years of pension holidays (I recently found that my city took 6 years of pension holidays so it could route those monies to downtown redevelopment). Does any rational person believe this crises wasn’t created? Sure, the Great Recession put a cherry on top, but it had to be clear where this was heading prior.

5) Meanwhile, Calpers suddenly becomes a political activist and pulls money out of many good investments. I’m all for doing the right thing, but isn’t Calpers my fiduciary first? Not a political activist first? I certainly don’t remember signing paperwork encouraging Calpers to lose my money for their political gain.

6) with hiring and retention plummeting due in large part to these shenanigans, why does this pension cutting philosophy still get thrown out? Because this is about union busting and privatization… making those previous careers into jobs. Good luck with running public safety like that. Again, hello 3rd world.

7) so, a plethora of reports have shown that 401ks aren’t enough for retirement. In fact, the creator of the 401k said it was never meant to be used like it is today; in fact he said many days he wished he hadn’t thought it up. So, many of us who don’t get Social Security are supposed to accept just a 401k? Uh… sorry

8) with all of this said, I feel current city administrators have no problem with creating pension crises in order to then cut pensions. It’s only a matter of time before retirees get thrown under the bus. I hate to say it, but it really is this simple… the people running many of our cities (and possibly state) have no honor. They’re corrupt weasels who will do anything — no matter how low — to get out of obligations. But, aren’t they worried about their cities reputations? Seriously, have you seen how these guys float from city to city? They don’t stay anywhere long enough for it to matter. Heck, even the stigma of bankruptcy can be eased by hungry rock bottom price investors and a good “it was inevitable” narrative.

Having put my life on the line for two careers, I’m sickened by what I’m seeing happen to my state and home. It’s frightening toward my future, and disgusting to this plane’s present.

“A “reasonable” Public Sector pensions is one EQUAL TO (but no greater) than those typically granted Private Sector workers.”

That’s not the way it works. Not equal pensions, but nearly equal “total compensation”. Most private sector workers don’t even have pensions, but many have higher pay than equivalent public workers. It is still called “deferred compensation.”
………………………

“Public Sector pensions ROUTINELY have a “value upon retirement”… …2 to 4 times (4 to 6 times for Safety workers) greater than the pensions/retirement-security typically granted Private Sector workers who retire at the SAME age, with the SAME wages, and the SAME years of service.”

The readers have no reason to believe YOU (as a retired CA light-bulb-changer) are informed enough, educated enough, or intelligent enough to accurately and impartially comment on Public Sector pensions.

In fact, being a recipient of one of these grossly excessive pensions (by any reasonable metric) and not wanting it justifiably reduced, makes everything you say extremely “suspect”.

The average Calpers pension is between 2500 – 3000 a month and many of those recipients are not eligible for Social Security.

The pension spiking that did push pensions higher was between 1998 and 2013. Granted, even as a Calpers member, I think spiking was terrible and should be rolled back, but… the average Calpers pension is neither large nor excessive. It’s very much in line with full Social Security and some very small investments. And BTW, many public safety Calpers members do not get Social Security… even if it was accrued prior to public service (thank Reagan for that).

Grow up, dood. Ad hominem attacks are for losers. You have been frequently incorrect in your facts. You have often overstated public benefits and understated compensation of the private sector. You have nothing to back up your rants except caps lock and constant repetition.

Because you and many of your cohorts are using emotion and misrepresentation, you are your own worst enemy. In other words, you don’t know jack.*

Your bias (not surprising, being a Public Sector retiree riding this Public Sector pension/benefit gravy train ….. and not wanting it derailed) is legendary.

Only a few days ago you referenced Rutgers Professor Jeffery Keefe to support your views. Interest choice with his bizarre belief that the annual “cost” of a pension is the ACTUAL GOV’T CONTRIBUTION in that calendar year. As I’ve pointed out……. some Plans have contributed NOTHING in a given year. Clearly the accruals granted the Plan’s workers in that year have value.

I simply stated that your “facts” were not facts. My response to you was fact. Look it up.

And while you’re reading, I suggest you look at police and fire recruiting in cities that cut pensions. It’s a fact that they all are hurting, cannot recruit (or recruit only to have most leave after training), and response times to violent crimes and fires are rising. Those are facts.

It’s not an assault, Love. It’s fact. Perhaps someday Rex the Wonder Dog can explain it to you.

1) You appear to believe this one study is unflawed and unbiased. The other studies disagree.

2) Anyone who reads these blogs already knows that most government employees receive higher pensions. It is a given.
It is called “deferred compensation”, still.

3) The question is, are the greater benefits enough to offset the lower salaries. The answer is, as it has always been…

Yes, at the lower levels, total compensation for public sector workers is greater than for similar private sector workers.

No, for higher level workers, even with their pensions and benefits, public workers earn less than their private-sector peers.

And no, for a large number of public and private sector workers in the middle ranks, their total compensation is roughly equal. They have higher pensions, but they are not, by definition, “GROSSLY EXCESSIVE” because they balance out the lower salaries.
This pattern is agreed to by all the major studies. The only disagreement is where the “average” lies.

4) Seriously, are you new at this? It’s not rocket surgery.

Or, as Juvenal says…
” you are just wrong about the comparison of public sector and private sector total compensation (except at the level which requires no education–sorry for giving them benefits other than Medi-Cal).) ”

“Anyone who reads these blogs already knows that most government employees receive higher pensions. It is a given. It is called “deferred compensation”, still. ”

No, when the MUCH greater Public Sector pensions (and MUCH greater Public Sector benefits…. such as retiree healthcare) are added to wages, for all of the workers taken together* (from the lowest to the highest paid), Public Sector “Total Compensation” remains MUCH greater than that of COMPARABLE Private Sector workers.

IN fact, 23% of pay in BOTH of our home states of CA & NJ.

* partitioning wages and total compensation by income level can provide useful information, but when it come the the financial impact on Taxpayers, it is irrelevant. It’s the HUGE net Public Sector Total Compensation ADVANTAGE (23% of pay in CA and NJ) from ALL workers taken TOGETHER that NEGATIVELY impacts our taxpayers.

You are blinded by your greed and an oversized sense of self-entitlement.

“useful information” like nationwide sixty percent of public workers are *not* overcompensated. Even including their so-called “excessive” pensions and benefits, they are either roughly equal to, or earn far less in total compensation than their private sector peers. The other forty percent all earn less than the national average income, but they do have a secure retirement. (Also less than the national average income.)
It is called “income compression” in the public sector. There is a “floor” beneath which pay cannot fall. And a ceiling above which they cannot rise, unlike the private sector. You really should try to understand this before you try to “reform” it.

To rephrase George Orwell, ‘All animals are unequal, but some animals are more unequal than others.’

Regarding a “reasonable pension”: I think it’s fair to say a 3% at 50 plan isn’t reasonable. City managers who get $200k+ pensions aren’t reasonable either. But your garden variety gov’t worker who made less than $100k and retired with less than that, has a reasonable pension and shouldn’t be cut. Those contracts should be honored.

TL cites the private sector and their 8% 401(k) contributions on average. That’s far too low, unreasonably low. 401(k)s are a disaster. When the CEO, BOD and the employees are all on the same retirement plan, then I might agree that the private sector plans are a good model to follow.

For anyone one who thinks S Moderation Douglas might be correct, just take a look at Figure 6 in the long linked-Study I provided in an earlier comment.

It shows a State-specific comparison of “Total Compensation” (wages + pensions + benefits) in the Public and Private Sectors, for all income level combined …… becasue THAT is what matters and financially impacts Taxpayers.*

From that Figure 6, only 8 of the 50 States show greater PRIVATE Sector Total Compensation and it never rises above a 6% advantage.

From that Figure 6, 42 of the 50 States show greater PUBLIC Sector Total Compensation with many of those states showing Total Compensation advantages of over 25%-of-pay, with one even rising to a 42%-of-pay advantage over it’s Private Sector workers.
—————————————-

* S Moderation Douglas continually focuses on Total Compensation comparisons BY INCOME SEGMENT, because he CANNOT get around the REAL PROBLEM……. that when the Total Compensation of all workers are taken together ……. there is a VERY VERY material Public Sector Total Compensation ADVANTAGE.

CalPERson, Clearly your views (above) are those of a Public Sector worker riding this pension/benefit gravy train and don’t want it reduced.

Unless a Public Sector worker is demonstrably paid less in wages than their Private Sector counterpart (while working as many hours and being equally “productive”) there is ZERO justification for Private Sector Taxpayers to provide YOU with a pension or benefits ANY (yes ANY) greater than what they typically get from their employers.*

You are NOT “special” and deserving of a better deal on the Taxpayers’ dime.

———————————-

* and when Public Sector are paid demonstrable less, ONLY the amount of the wage shortfall justifies a greater pension/benefits …….. not the MULTIPLES greater pensions that are routine today.

S Moderation continually focuses because, if your alleged goal is EQUAL, not better, why on Earth would you want to cut the compensation of the thousands of state workers who are already undercompensated? Or the hundreds of thousands in the middle cohorts who are “roughly equal” in compensation. It is not “fair” and it will make it even more difficult to recruit and retain qualified employees.

Ergo, start cutting at the bottom, where all the studies agree the public workers earn much more than those in the private sector. Except, you will find there is not much political or societal will to cut those lower pensions, for reasons that are not apparent in your spreadsheets. “There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy.”

Also, while Biggs study may have been useful for ranking the generosity of states, you would be ill advised to take that “23% advantage” to the bank. His was the outlier of several studies and no more immune from error or bias than any other.

“While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension,” Justice James Richman wrote in the Marin County ruling.

It is oft repeated on these boards that the stated “average pension” of about $2,900 a month is misleading because it includes those that retired long ago on much smaller salaries, or those who worked only a few years. The average for recent full term retirees is closer to $70,000.

But, $2,900 a month is typical for full career, recent retirees in the lowest paid positions. Even the most staunch pension reformers have not shown a tendency to classify these pensions as “unreasonable”.

A public sector janitor, engineer, and doctor walk into a bar. The doctor tells the janitor, “You’re picking up the tab. You are the only one here who is overpaid.”

“S Moderation continually focuses because, if your alleged goal is EQUAL, not better, why on Earth would you want to cut the compensation of the thousands of state workers who are already undercompensated? ”

I am one of NJ’s betrayed and abused Taxpayers (as indeed are CA’s), and my perspective is IN TOTAL for all workers taken together because THAT is what financially impacts the Taxpayers.

What I’m calling for is (by example) that if we have (say) 100,000 COMPARABLE Public and Private Sector workers, the “Total Compensation” for the 100K in the Public Sector group should be (roughly of course) equal to the 100K in the Private Sector group.

Personally, I don’t give a Rat’s A** how its dived up between lower, middle, and higher paid workers.
___________________________________

Quoting S Moderation Douglas ………….

“But, $2,900 a month is typical for full career, recent retirees in the lowest paid positions. Even the most staunch pension reformers have not shown a tendency to classify these pensions as “unreasonable”.”

We’re all entitled to our own opinions, and I see ZERO justification for paying a lower-echelon Public Sector worker more in “Total Compensation” than what the identical job would pay in the Private Sector. And if that compensation is insufficient to meet basic needs it should be addressed through the Social Services system …..just as it is now for Private Sector workers in such situations.

Maybe more reasonable than you think. Most high level managers and professionals in public sector jobs earn much less than equivalent professionals in the private sector. Even with their higher pensions and benefits, they usually have lower total compensation than their private sector peers. Ask me about Michael Genest some day.

Having said that, the PEPRA limit on pensionable income is a logical step also, limiting pensions to a “reasonable” around $100,000 max. Will probably lead, in many cases, to an increase in salary for many of these employees, from which they can contribute to their own IRAs or 457s, if they so choose.